February 16, 2022 

Saving with increased credit is something less talked about among American investors who want to be better prepared financially for retirement.

According to Fidelity Investments' last two-year retirement savings estimates, the average American household is on track to have 83 percent of the income they will need in their expected retirement years -- about half that. By comparison, fifteen years ago, when the assessment was conducted for the first time, the forecast was a dismal 62 percent.

“This is a testament to the hard work many families put into controlling their finances,” said Melissa Ridolfi, vice president of retirement and college governance at Fidelity.

The study is based on a comprehensive national survey of 3,234 identified retirees aged 25 to 74 in households earning at least $20,000 per year and examined assets such as retirement accounts, equity, inheritance, and current or anticipated pension and social security benefits. The only serious finding: 28 percent of those surveyed could walk with a bright red warning sign if they didn't take clear steps to compensate for their current deficiency.

Fidelity actually uses color-coded indicators to give a more complete picture of a household's ability to cover their estimated costs in the following years of a falling market:

• Dark Green ("On Target"). 37 percent are on track to cover more than 95 percent of their expected spend (up 5 percentage points from 2018).

• Green ("Good"). 17 percent travel for 81 to 95 percent – ​​the most important but non-discretionary elements like travel and entertainment (1 percentage point decrease compared to 2018).

• Yellow ("Enough"). Eighteen percent is 65 to 80 percent, which is why they face “simple adjustments” in their lifestyle (down 3 percentage points from 2018).

• Red ("Need Attention"). Twenty-eight percent completely lost their way at less than 65 percent cost (down 1 percentage point from 2018).

Two factors that led to the transition to green?

First, the average saving rate has been increasing steadily over the years -- now 10 percent versus 8.8 percent two years ago -- with baby boomers making the most of the draw (11.7 percent of their salary). Even millennials, a generation known for their crushing student loan debt, manage interest rates of 9.7 percent.

And second – and this is often overlooked – an increase in asset allocation.

“Sixty percent of respondents allocate their wealth in a way that Fidelity thinks is age-appropriate,” says Ridolfi, “compared to 48 percent in 2006.

One reason is that over the past decade, many workplace retirement plans have begun to default on funds and accounts managed by deadlines.

For those curious about their own retirement readiness, Fidelity's free retirement assessment tool allows anyone to get their score and see the percentage they are projected to save relative to their projected required income. Better yet, you can also test possible changes that allow for an easier path to retirement.

And when you crave convenience, never forget the three greatest "accelerators" to increase your readiness. In particular, by increasing your savings rate to the minimum recommended savings rate of 15 percent (including all employer 401(k) contributions), age-appropriate asset allocation, and deferring Social Security benefits to at least 66 or 67, you can significantly increase your overall score is above 100.

"Each individual accelerator is useful, of course," says Ridolfi, "but all three together can help you go from 'good' to 'great'."

Thank You All!